Australian Financial Services Licensing (AFSL) Forum

Home Forums Australian Financial Services Licensing (AFSL) Forum Legal claims relating to financial advice – what time frames apply?

Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
  • #2409 Reply
    Broadly speaking, if a person wants to bring a civil action against another, six years is the relevant time frame within which the action should be commenced. If proceedings are issued outside that timeframe, the claimant can be faced with a Statute of Limitations defence which is a complete defence.  The tricky part is determining when the six years begins.
    If inappropriate advice is given, there are a number of causes of action on which a client can base a claim. These include:
    • breach of contract;
    • negligence; or
    • by seeking a civil remedy under s 953B of the Corporations Act 2001, which allows a person to recover loss or damage resulting from a breach of s 945A of the Act.


    The client can also lodge a dispute with the external dispute resolution scheme of which the adviser is a member, such as FOS.
    The clock starts ticking at different times. For example, with a breach of contract (the advice is not fit for purpose) the six years begins at the moment the advice is given. Under negligence or s 953B of the Act “the clock starts to tick” once the client suffers loss, which may be long after the advice is given.
    If a complaint is lodged with FOS and falls under its jurisdiction, the period can be even longer. Under clause 6.2b) of its Terms of Reference, FOS can consider a dispute “within six years of the date when the Applicant first became aware (or should reasonably have become aware) that they suffered the loss”.
    Furthermore, FOS can consider a dispute lodged later than this if “exceptional circumstances apply”.
    In practical terms, a claim can be made a long time after the advice in question is given.
    If you require further information, please feel free to contact our team.
    #3085 Reply

    Thanks Sonnie. How does this impact on document retntion periods? The gneral rule of thumb is to destroy documents after seven years.

    #3086 Reply
    Hi John.  You make a very good point.  Seven years is a common rule of thumb for document retention.
    There are risks involved with destroying documents.  A firm that destroys documents after seven years, for example, may subsequently find that they are subject to a claim for negligence or a dispute with an EDR scheme, and that they do not have any information relating to the advice in question.
    There are some factors which mitigate this risk.
    Poor quality advice is generally not very robust.  Bad advice will tend to reveal itself sooner than later.  For example, it is uncommon to see a FOS dispute arise over advice given 7 or more years ago.
    Furthermore, if a client is going to take action, they will need to provide evidence in support of their complaint.  This is likely to involve disclosure documents, letters, or emails which they have retained. Assuming the advice is sound, this should be clear in all correspondence with the client.
    Ultimately, the decision relating to how long to retain documents is a business decision that involves a balance of this sort of risk versus the costs of retaining them.
    With respect to the 7 year rule of thumb, it should be treated as a rule of thumb and not a firm rule.
    Most AFSLs have a condition that specifies that documents such as FSGs and SOAs must be held for at least 7 years, implying that they can be destroyed beyond this period.
    However, there are other considerations:
    • Some information is trivial and doesn’t need to be retained in the first place.
    • Some documents should never be destroyed.  Imagine destroying a client’s will, just because 7 years have elapsed since it was signed!  Other documents that should never be destroyed include company constitutions, long term leases with options to renew, etc.
    • Some documents must be destroyed prior to 7 years.  For example, where the National Privacy Principles apply and no other obligations intervene, personal information which is no longer required for the purpose for which it was collected should be destroyed.
    • In quite a few areas, there is a legislative obligation to retain records for a longer period. For example, some superannuation records must be kept for 10 years.  Some of these obligations are generic (e.g. tax, corporate records) but many will be specific to your business.
    • There might be files or elements of files that involve an element of increased risk.  It might be prudent to keep some files where the clients’ affairs are particularly complicated, or the advice could be construed as inappropriate, or where a client has expressed dissatisfaction and the adviser thinks they may complain in the future.
    A 7-10 year retention period will, in the vast majority of cases, be a sufficient safeguard.  However, a quick review of files to be destroyed should still be undertaken.  A document retention policy should be developed with an appreciation of the risks involved. We take a more conservative approach with recommending, in general, that documents be retained for 10 years.  For one large business which we know of, they decided it was easier to rent storage space for old files than to sift through each file!!
Viewing 3 posts - 1 through 3 (of 3 total)


Reply To: Legal claims relating to financial advice – what time frames apply?

Your information:

<a href="" title="" rel="" target=""> <blockquote cite=""> <code> <pre class=""> <em> <strong> <del datetime="" cite=""> <ins datetime="" cite=""> <ul> <ol start=""> <li> <img src="" border="" alt="" height="" width="">

  • Free answers to common Financial Services Regulation (FSR), Consumer Credit and AML/CTF issues.

    Click here to join our LinkedIn group for responsible managers and compliance professionals.
  • Training

    Regulatory Compliance Training for Directors, Responsible Managers and Compliance Staff

    View Courses

  • Legal Advice

    Review your AFSL or ACL disclosure documents, conduct a licensee audit and more…

    Get Legal Advice

  • Compliance support

    The HN Hub – an online platform built to support Responsible Managers and Compliance Staff